Purchases made on the spur of the moment without regard for a budget result in large credit balances, posing financial hazards. Credit card balances can easily accumulate. Being lazy in day-to-day activities may be fine but in the case of finances, especially loans, and credit card debt, the consequences can be harsh for you. The longer you wait, the more interest accrues on your credit card debt. This will also hurt your credit score.
It is surprising that despite such consequences, people still delay their credit card payments and accumulate interest. But if you are one of them and stressed out, don’t worry. You’ve come to the right place. We will discuss the top 5 ways to get out of credit card debt.
A Balance Transfer Credit Card Debt
If you have amounts in several cards, then a balance transfer card will allow you to transfer amounts from one or more credit cards to a single card, for which a fee is charged.
One of the best benefits of this option is that an introductory reduced interest rate, often 0%, is charged for a limited time. This means you can significantly reduce your principal and even pay off the loan in full in the introductory period.
However, a balance transfer fee is also charged, usually 3 to 5% of your total transferred amount. Also, once the initial discount period ends, interest is charged.
The Snowball and Avalanche Methods
These two methods are quite similar, differing in terms of preference of repayment. The Debt Snowball method focuses on the payment of small balances first. Basically, you arrange all your balances from lowest to highest. You pay the minimum amounts required for all your cards and pay more on the one with the lowest amount payable. Once that debt is paid off, you move on to the next lowest card. You continue this process until all of the debts are paid.
This method will initially allow you to clear debts quickly which will motivate you to continue paying and clearing. But since this focuses on small amounts first, the larger balances will keep accruing interest in the meanwhile which can increase future interest payments. This method will also help you improve your credit score.
In the Debt Avalanche method, you prioritize saving on future interest payments. First, you arrange all your debts from the highest interest to the lowest. Again, you pay the minimum amounts required for all your cards and pay more on the one with the highest interest. Once that debt is paid off, you move on to the next highest. You continue the process until all of the debts are paid.
This method will lessen your interest expense but may take longer since large balances will obviously take a longer time to pay back.
Prepare a New Budget
Though a bit obvious, this is the most important thing you should do if you intend to get out of credit debt. You should start with reprioritizing your budget. Think about all your expenses, such as groceries, entertainment, transportation, etc. You can always find places where you can cut back. Leave the habit of buying anything that looks appealing on the internet. You can also find cheaper alternatives of different things to buy, often of similar quality. Start saving and focus on paying back the credit debt first.
Get a Personal Loan
This option is best if you do not have a good credit score. Such loans also have lower interest rates than the APRs charged on credit cards. Check online, local banks, or credit unions to get a personal loan. You will also be making single payments instead of multiple credit payments.
Try Credit Card Debt Consolidation
This is a good option for you if you have trouble making multiple payments. Loan consolidation enables you to consolidate all of your debts into a single loan. When compared to the rate on your many loans, this usually results in a lower interest rate loan. You utilize the loan proceeds to pay down all of your debts, then repay the consolidation loan in a single payment.
Such plans simplify your payments into a single payment and the interest charged is often lower. However, it is not always easy to get such a plan as consolidation companies have set criteria. You only get the plan if you qualify.
Although it may not be quick or simple, many people who stick to a debt management plan say that the relief they feel once they are debt-free is worth it.
If you have a lot of credit card debt, now is the right time to start working on paying it off. Consider all of the options and choose the one that suits you the most.
Credit card debt is not formally forgiven under any federal program in contrast to student loans. There are some debt settlement plans but those are highly discouraged and risky options.